WISE OWL EXERCISES
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- Investment appraisal (1)
Excel | Scenarios exercise | Investment Appraisal - Scenarios
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Open the file within the folder named above. This shows an investment appraisal model for a friend's business venture, in which you put in £40,000 at the end of year 1 and receive £10,000 back for 7 subsequent years. At a discount rate of 8%, the Net Present Value of the investment is £11,170.
Note there are duplicate NPV and IRR on the inputs sheet (this is necessary because a scenario can not change cells on one sheet and compare results cells from a different sheet):
Don't forget to give your cells range names.
Create the following 3 scenarios:
- Smaller dividends - the income for the 7 subsequent years is £9,000 only
- Higher initial investment - the original outgoing is £60,000, not £40,000
- Interest rate rise - the discount rate is 10%, not 8%
Which of these scenarios would produce the lowest NPV, do you think?
Create a summary report showing the NPV and IRR for each scenario:
Raising the initial outlay had the worst effect on the NVP, but all scenarios lowered it.
Use Save As... to save the file in your own new Excel work folder.